One Belt, One Road: 'Its significance is underrated in the U.S. and the West' (15 mins)

June 2017

'Its significance is underrated in the U.S. and the West.’

a discussion with Pieter Bottelier
Visiting Scholar
School of Advanced International Studies,
 Johns Hopkins University

Pieter Bottelier:           We are going to talk about that little understood, enormous Chinese initiative, which is both diplomatic and economic and financial in nature called One Belt, One Road, the full name of which is ‘Silk Road Economic Belt and 21st-century Maritime Silk Road.’ It’s also known as the ‘Silk Road Initiative, ’ the ‘New Silk Road,’ the ‘Belt Road Initiative,’ and by the acronyms, BRI or OBOR, among others.

                                   It's a Chinese initiative to establish connections with Central Asia, Europe, Middle East, and North Africa in order to promote development in those countries but obviously also in China.

Malcolm Riddell:         There was just a big meeting in Beijing. Can you tell us a little bit about what happened there?

Pieter Bottelier:           There have been many meetings on this initiative, but the biggest was just held on May 14th and 15th in Beijing. It was called the Belt Road Initiative Forum, BRIF or BRF. It was an enormous event according to what I have read. I wasn't there. There were 29 heads of state including Russian president Putin, the prime minister of Italy and many other dignitaries, but mostly, of course, heads of state of smaller countries in Central Asia and Southeast Asia that hope to benefit from this Chinese initiative.

Malcolm Riddell:         When we talked, you mentioned there was a notable exception.

Pieter Bottelier:           Well, the notable exception, in my opinion, was India. India is potentially the largest beneficiary of this Chinese initiative because they are desperately short of infrastructure and are, of course, a huge economy, a huge country. But, Prime Minister Modi decided not to send a representative to this event in Beijing. The reason for that, I can only guess is Pakistan.
Pakistan is one of the largest beneficiaries of this Chinese initiative, and the Chinese together with the Pakistanis are building this huge corridor from the Karakoram Mountains in north Pakistan to the south to Karachi and Gwadar Port. That is called the Karakoram Corridor, and that's an enormous infrastructure investment project. The road already exists. It was built before China took this initiative, and it passes through an area in Kashmir that is claimed by both China and India. That is probably the diplomatic reason for Modi's refusal to attend.

Malcolm Riddell:         What were the outcomes of the meeting?

Pieter Bottelier:           During the two or three days that they met, they signed 317 major investment deals between China and some 60 other countries, Southeast Asian countries, Central Asian countries, Middle East countries, African countries, and some East European countries. This thing, which was a mere vision when it was first proposed by Xi Jinping in 2013, is gradually becoming a reality on the ground, and they are arranging for the institutional framework within which this initiative can be played out.
It is huge. It's huge by historical standards. It's much larger than the Marshall Plan ever was, many more countries, much more money involved. This conference on May 14th and 15th may consolidate the vision by Xi Jinping and begin to translate it into a concrete framework of actions and institutions.

Malcolm Riddell:         Can you tell us a little more about the framework?

Pieter Bottelier:           The initial idea was by Xi Jinping to establish a national investment bank for this initiative, the Asian Infrastructure Investment Bank, the AIIB. It started operations in 2015. But, it soon became apparent that the AIIB would be far too small to deal with the massive flow of money – they're talking about one trillion dollars over 10 years – and they began to assign funds to other institutions and to create new institutions. The most important new institution, created in 2014 as a subsidiary of China Central Bank – the PBOC – is called the China Silk Road Fund. The Fund initially was given 40 billion dollars as seed capital to help finance many of these OBOR initiatives.

                                   Other institutions have also been created, such as the Brics Bank in Shanghai, which is called the New Development Bank. It made its first loan at the end of 2016. China also assigned major financing responsibilities to state-owned financial institutions such as the China Development Bank, which is the single largest of the participating institutions, and the China Export-Import Bank, as well as, some of the major state-owned or state-controlled commercial banks. This thing is really beginning to take shape now, and it is huge by any standard.

Malcolm Riddell:         Now can you give us some highlights from the deals that were signed?

Pieter Bottelier:           Well the most important of the deals that are ongoing is the Karakoram Initiative, the transport corridor in Pakistan. The Pakistan program, which is the single largest of the Silk Road Initiative, now also includes a major power plant in Karachi, so it's not just roads, not just transportation infrastructure. There's also energy infrastructure. It also includes further expansion of the port in Gwadar, which is a deep water port between Karachi and the border with Iran, which is managed by China, owned by Pakistan, but obviously extremely important as an additional point of entry to Western China through Pakistan.

                                   There are several major railway projects under implementation. Fast track railway projects in Indonesia from Jakarta to Bandung and along the north coast of the Java Island. Then there is this huge project in Turkey, across most of Turkey, a railway project to Istanbul. Then there is in Southeast Asia, this railway project from China all the way to Singapore, through Laos. They're building the Laos component as we are speaking. This is a hugely difficult engineering project because the rail has to cross many mountains and much tunneling is involved in that project. It will go all the way through Thailand, Malaysia, to Singapore. These are just some of the projects that are ongoing.

Malcolm Riddell:        These are certainly impressive projects, but really what's the overall vision that we're looking at here? Assuming it's all done, all put together, what are we going to have?

Pieter Bottelier:           That is why it has often been misunderstood in the West because this is a Chinese initiative, and it hasn't been really defined very well beyond the general vision. It was first presented by President Xi Jinping at Nazarbayev University in Kazakhstan in October of 2013. The vision, as I understand it, is a huge, new way of looking at development, by putting infrastructure first. China has a different vision of the importance of infrastructure than typically the World Bank or Western countries in general. In the West, we don't finance infrastructure until there is clear indication that the project will be justified by demand.

                                   China's philosophy about infrastructure is different. You build infrastructure to create demand, to make development possible. That's a very different perspective on the importance of infrastructure and development than we typically hold in the West. China offered, in 2013, when it was still extremely cash rich, which is increasingly becoming a problem today, to channel Chinese surplus cash into infrastructure investments in neighboring countries in Central Asia, going all the way to Moscow. A fast train service to Moscow has been proposed by China and accepted by Putin. That would reduce the rail travel time from Beijing to Moscow to two days instead of one full week. The vision includes Chinese finance for infrastructure to connect China with a large part of the world, including all of Central Asia, Russia, Eastern Europe, North Africa, and the Middle East.

Malcolm Riddell:         What are the advantages to China over where they stand today?

Pieter Bottelier:           The advantages for China, would, if it all works out, be long-term. It's all very long-term, of course. That's a typical Chinese way of thinking about development. OBOR could create long-term growth potential for China in the sense that many countries, mostly smaller countries, would look to China as a source of supplies and investment. Right now the US is the center of the economic world. China wants to become that center and thereby create enormous long-term growth for itself, all over the world. The second motivation for the initiative is to reduce the burden of enormous excess capacity in basic industries and also to provide an outlet for its enormous construction companies. China's construction companies are amongst the largest in the world and have enormous capabilities that are only partly used in China today. All these things add up to self-serving motivations for China, economic motivations. How that will pan out only time will tell. We have to look at this over 5, 10, 25 years. This is the timeframe that China is thinking, or more. Even longer, perhaps.

Malcolm Riddell:         How do you put this in the context of the economic reforms, especially those that were most recently expounded at the Third Plenum IN 2013?

Pieter Bottelier:           Well, this is the big question in my mind. Not long after Xi Jinping became the general secretary of the party and president of the republic, the Party Central Committee held a major meeting in November of 2013, which is called the ‘Third Plenum of November 13,’ where the party committed itself to implementing the economic reforms that were started by Deng Xiaoping in the 1970s, and to rebalance the economy, a program, a major structural economic reform program that was started under Hu Jintao and Wen Jiabao, during the previous government.

                                   The rest of the world, mostly the China watchers, were quite satisfied with the result of that Third Plenum because it seemed that the party committed itself to completing these very ambitious and difficult reforms. What we have seen in practice since that time is that the promises have remained promises. We have seen much less implementation of these Third Plenum promises than we had expected. Instead, we see a lot of political capital being invested now in initiatives such as this Belt and Road Initiative.

                                   My big fear is that China or that Xi Jinping and the people around him may be seeing this initiative, which is huge as I mentioned, as an alternative to completing the economic reforms that were started by Deng Xiaoping. Time will tell if these fears are justified or not. But, if they do indeed soft-pedal the economic reforms, then the Belt and Road Initiative has to be seen in a very different light because if China does not complete those reforms, the Belt and Road Initiative will ultimately become a huge burden on China and a disappointment for many of the countries, the 60 to 65 countries that hope to benefit from it.

Malcolm Riddell:         Can you say a little bit more about why it will become a burden?

Pieter Bottelier:           Because China's growth will continue to go down. And, whereas China is still a relatively cash-rich country at the present time, I think these favorable economic circumstances, which led to the Belt and Road Initiative in 2013, will gradually become less and less important. China will become more like a normal developing country, suffering cash shortages, balance of payments problems, maybe even trade deficits with U.S., although that is hard to foresee at the present time. The enormously favorable economic circumstances that we more or less take for granted when we talk about China will not last forever. If China has commitments of hundreds of billions of dollars to finance infrastructure and related projects in the countries that hope to benefit from this Belt and Road Initiative, China could ultimately run into solvency problems.

Malcolm Riddell:         Is there anything else you want to add about One Belt, One Road?

Pieter Bottelier:           Well, I think we are still in the early stages of this. This is an absolutely gigantic initiative. Xi Jinping is putting all his political eggs in that basket, and it is diplomatically, economically, and financially hugely important. The Western world is only now beginning to take notice of this important initiative. The Trump administration sent a fairly substantive delegation for the U.S. to the recent forum in Beijing. Otherwise, there is very little Western involvement in it. The question in my mind is whether ultimately, maybe because of a growing financial squeeze in China, China will invite private investors to become part of the OBOR initiative. That would create a whole new perspective on this thing and potentially would become very important for private investors also. I haven't heard anything about that. In neither the speeches in Beijing nor Xi Jinping's own speech on the 14th of May was there reference to private partnership investments in the Belt and Road Initiative, but I would not be surprised if that then became part of the story in the next few years.

Malcolm Riddell:         Terrific. Thank you, Pieter.

Pieter Bottelier:           My pleasure.

Pieter p. bottelier

Pieter Bottelier

Visiting Scholar, SAIS (School of Advanced International Studies, Johns Hopkins University)

Visiting Scholar, School of Advanced International Studies, Johns Hopkins UniversityFormer Chie...
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